There are two ways to account for Vat, explains the Practical Vat Loose Leaf Service.
The first is the invoice basis – this is when you declare Vat to SARS on the invoices you issued and received, regardless of whether or not they've been paid.
The second method is the payment basis. This is where you declare Vat to SARS on all payments you've made and received. Essentially with this method, 'you'd calculate your Vat according to your cashbook' says tax consultant Peter Franck in the The Practical Vat Handbook.
But which VAT accounting basis is right for your business?
Not every Vat vendor can use the payment basis to account for their company's Vat. In fact, if you're a company, CC or Trust, SARS will force you to account for Vat using the invoice basis.
Here's a list of Vat vendors that can use the payment basis:
What happens if you need to change the way your company accounts for Vat?
'If you're registered on the payment basis for Vat, and your turnover exceed the R2.5 million mark, you have to notify SARS and it'll change the your details to place you on the invoice basis, from a date it specifies,' explains Franck.
You can do this by visiting SARS's website and submitting your application for change in accounting basis VAT117 form.
And don't forget, failure to do so could result in SARS auditing you and charging you interest and penalties on any Vat amount you should have paid using the invoice basis.
If you need more information on the invoice and the payment basis, get your hands on the Practical Vat Loose Leaf. In the Practical Vat Loose Leaf we've got a dedicated chapter on the invoice and the payment basis. In this chapter you'll discover:
Get the Practical Vat Loose Leaf here...